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New builds may offer more flexible pricing
Nicole Bashaw, senior economist at Zillow Group, recently told CNBC that buyers are looking to new construction because “there’s more opportunity” in a housing market that’s struggling with supply.
Unlike established home sellers, builders typically have more flexibility when it comes to pricing. Experts say builders can also offer incentives to buyers, such as discounts and discounts, or cover closing costs.
Dietz said just under two-thirds of builders use some kind of incentive to boost sales. These may include amenity upgrades, lower mortgage rates, and limited price reductions.
Only about a quarter of builders are taking advantage of price reductions, Dietz said. And those price reductions average around 5% to 6%.
Price difference between used and newly built homes
The median sales price for new homes sold in the United States in March was $430,700, according to the latest data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
New homes still sell for slightly more than existing homes, but the price gap has narrowed significantly.
“Prices are much closer to parity than at any time in the last 30 years,” Matthew Walsh, assistant director and economist at Moody’s Analytics, previously told CNBC.
Over the past six months, the median price for new homes has been only about 4% higher than the median price for existing homes. This level is significantly lower than before the pandemic, when the median price of new homes was more than 40% higher than existing homes, Walsh said.
Dietz explained that while the low supply of existing homes has driven up prices significantly, new construction prices tend to fluctuate based on interest rates, housing demand, the amount of competition for existing homes and construction costs.
Points to note when purchasing a newly built home
If you’re considering new construction, keep in mind that only about 10 percent of new homes available for sale can be considered complete and move-in ready, Dietz says.
The majority of new homes available can vary depending on vacant land ready for construction and various stages of construction, he said.
From considering different home types and locations to making design decisions, Dietz said today’s buyers “need to be strategic, patient and flexible.”
Here are four things to keep in mind:
1. Consider smaller homes: Since 2021, home builders have been building “slightly smaller products” to address the lack of affordability, Dietz said. Reducing the square footage of your home not only reduces construction costs, but also reduces utility and maintenance costs. Townhouses accounted for nearly 18% of single-family housing starts in the first quarter of this year, according to NAHB data.
The size of new single-family homes continues to shrink, with the median single-family floor area in the fourth quarter of 2023 at 2,156 square feet, the lowest since early 2010, NAHB revealed.
2. Be open about your geographic location: New construction can be cheaper to build in rural areas, Dietz said.
“Whether it’s reducing regulatory costs or expanding land availability, it could be a smart move,” he said.
3. Lower construction costs: Key factors such as lumber and labor costs greatly impact the cost of a new home. However, as a future homeowner, you can control the finishes that are added to your home. And builders are “picking up the tab” depending on the types of materials they add to their homes, Veronica Fuentes, a Washington, D.C.-based wealth management advisor, previously told CNBC.
To save money, focus on completing the structural elements of your home and stick to basic or low-cost features during construction.
4. Be aware of future costs: Make sure you have some wiggle room in your budget to account for the significant change in costs after the first year of ownership of your new building. For example, property taxes on new homes tend to increase significantly after purchase because the initial tax rate is often based on an estimate.
Be sure to find out how often the county you’re considering reassesses property taxes and what the formula is based on.
However, keep in mind that there are other savings that can offset these costs.
“When you buy a new home, you’re typically buying a home that’s more durable and more energy efficient,” Dietz said, adding that this means lower operating costs in the long run. Stated.
